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# Accounting problem

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From the given data, calculate the following ratios for the Logan Corporation for 20X6.
a) current ratio
b) quick ratio
c) debt ratio
d) rate of return on net sales

Prepare journal entries for the following transactions for Lamplighter Company

Prepare summary journal entries for the use of direct materials, direct labor and manufacturing overhead, and for the transfer of goods completed.

Compute the cost per equivalent unit for direct materials and conversion.

#### Solution Preview

Accounts payable \$ 60,000
Accounts receivable 75,000
Cash 125,000
Merchandise inventory 90,000
Short-term investments 50,000
Accrued liabilities 30,000
Notes payable (due in 20X9) 50,000
Total assets 350,000
Total liabilities 180,000
Net sales revenue 225,000
Net income 22,500
Current Ratio:
Your current ratio, a comparison of current assets to current liabilities, will be particularly important to you if you're thinking of borrowing money or getting credit from one of your suppliers.
Potential creditors use this ratio to measure a company's liquidity or ability to pay off short-term debts.
Though acceptable ratios may vary from industry to industry, a current ratio of 2.00:1 is considered the norm.
The formula
Current assets divided by current liabilities.
Source: http://www.bankrate.com/brm/news/biz/bizcalcs/ratiocurrent.asp
Current Ratio
What it is:

The current ratio is the standard measure of any business' financial health. It will tell you whether your business is able to meet its current obligations by measuring if it has enough assets to cover its liabilities. The standard current ratio for a healthy business is two, meaning it has twice as many assets as liabilities.
When to use it:

The current ratio should be part of your business' basic financial planning, meaning it should be tracked monthly or quarterly. By keeping a close eye on this figure, you will recognize if it begins to get out of line. This will allow you to take early action to prevent your business from ending up in a difficult position.
The formula:

Current assets divided by current liabilities.

Current Assets:
Cash 125,000
Accounts Rec. 75,000
Short Term Inv. 50,000
Inventory 90,000
Total Current Assets 340,000

Current Liabilities:
Accounts Payable 60,000
Accrued Liabilities 30,000
Total Current Liabilities 90,000

340,000 / 90,000 = ...

#### Solution Summary

This problem involves the fundamentals of accounting. The expert prepares the journal entries for transactions.

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